GBP/USD Price Slips to 1.3552 as Dollar Gains on Inflation Data

GBP/USD Reversal as U.S. Inflation Data Reshapes Rate Expectations

The GBP/USD pair, which had been extending a nine-session rally, turned lower after U.S. Producer Price Index figures for July came in substantially hotter than expected. Headline PPI surged 0.9% month-over-month versus flat the prior month, while the annual pace accelerated to 3.3%, far above the 2.5% consensus and June’s 2.3%. Core PPI, feeding directly into the Fed’s preferred PCE gauge, jumped to 3.7% year-over-year from 2.6%. This inflation spike reinforced the narrative that U.S. producers are passing tariff-related costs on to customers, countering earlier Treasury statements that companies were absorbing them. Jobless claims data added to the dollar’s momentum — initial claims came in at 224,000, undercutting estimates, while continuing claims slipped to 1.953 million, indicating labor market resilience.

Sterling Supported by Stronger UK Growth Data

Despite dollar strength, the pound drew underlying support from better-than-expected UK GDP numbers. Q2 output expanded 0.3% quarter-on-quarter, well above the 0.1% projection, though slower than Q1’s 0.7% which was bolstered by tariff-related shifts and a stamp duty deadline. June alone delivered a robust 0.4% monthly gain, with revisions to April data also contributing. The upside surprise, combined with earlier signs of economic resilience, reduced immediate pressure on the Bank of England to accelerate policy easing. Current market pricing via LSEG implies just 15 bps of cuts through year-end, in contrast to a Fed outlook where two more reductions are seen as plausible by December.

Technical Battleground Around Key Resistance Levels

The post-CPI rally had lifted GBP/USD to test the 1.3584 resistance zone — the pivot that triggered sharp selling in late July. The rejection from an intraday high of 1.3594 has shifted near-term momentum, with price gravitating toward the 1.3500 psychological handle. A daily close below 1.3500 could expose 1.3380 as the next significant support, while a clean break above 1.3584 would bring the 1.3700–1.3750 band into focus. The 20-day SMA near 1.3498 remains a tactical support line, with bulls looking to maintain closes above it to preserve structure.

Macro Policy Divergence in Play

The Fed funds futures market, which had priced a 94% probability of a 25 bps cut in September pre-PPI, has now sharply reduced the odds of a 50 bps move, with some traders even factoring in no change. By contrast, BoE policy path expectations remain far more measured, reflecting domestic inflation stickiness. The rate differential dynamics are pivotal — if the Fed proceeds with cuts while the BoE delays easing, sterling could regain upward momentum toward multi-month highs. Conversely, a hawkish Fed repricing would likely drag the pair back toward mid-range support levels.

Market Breadth and Cross-Currency Flows

While GBP/USD slipped roughly 0.2% to trade near 1.3552, the pound’s performance against other majors remained broadly positive. It gained 0.67% versus the euro, 1.12% against the Australian dollar, and 1.26% over the New Zealand dollar this week, reflecting a GBP-specific bid outside of the dollar cross. These flows highlight that sterling’s weakness against the greenback is more a function of U.S. rate repricing than domestic deterioration.

Short-Term Scenarios and Risk Triggers

Friday’s U.S. retail sales and University of Michigan consumer sentiment index are the next catalysts, with any sign of resilient household spending likely to bolster the dollar. On the UK side, traders are already looking ahead to August 20 CPI data, which could recalibrate BoE policy bets. Near-term, holding above 1.35079–1.35558 (H4 fair value gap) keeps the bullish structure intact, opening the door to a 1.36 breakout and 1.3700 test. A sustained break under 1.3500 would instead suggest institutional demand has been absorbed, shifting bias toward 1.3440–1.3380 support retests.

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